Should Congress Cut ACA Insurance Premiums for Young People By Raising Them For Those 50+?

A proposal by congressional Republicans aimed at reducing health insurance costs for young people would substantially boost premiums for those over age 50, according to a new analysis by the actuarial firm Milliman Inc. The proposal could result in up to 18,000 older adults losing health coverage and increase the cost of federal insurance subsidies by $6.7 billion, if the government continues to offer Affordable Care Act-type subsidies.

The GOP plan would change a provision of the ACA intended to cap insurance costs for older adults who are not yet 65, when they become eligible for Medicare. The law bars insurance companies from charging them more than three times what young people pay for the same coverage. The proposal would allow insurers to charge them up to five times as much.

The idea is one of several being considered by the GOP in its effort to “repeal and replace” the ACA. It is not known if the Trump Administration will back the proposal. However, Rep. Tom Price (R-GA), President Trump’s pick to run the Department of Health & Human Services, has pushed the plan in the past.

Younger adults have been reluctant to buy health insurance, despite government subsidies for purchasers and penalties for those without coverage.  Private insurers say premiums would stabilize if about 40 percent of marketplace enrollees were aged 18-34. However, in 2016, only about 28 percent of those buying in the individual market were in that age group.

Some analysts say that health status of buyers is more important than their age. Still, the unwillingness of younger people to buy on the exchanges may have had some effect on premiums.

To address that problem, Hill Republicans would allow insurers to age-rate premiums in a way they say more closely matches costs. And the Milliman study, which was done for AARP, finds that lifting the current 3:1 limit would significantly lower premiums for those aged 39 or younger and boost their enrollment by about 300,000—about 4 percent for those aged 20-39.

Some analysts think even that estimate is optimistic. For example, a 2013 study by my colleagues at the Urban Institute found that a 5:1 cap on age rating would reduce premiums and enrollment of young people even more modestly.

There is more consensus about the effects on older people. Milliman found that annual premiums for those aged 50-59 would increase from an average of $11,316 to $12,840, or about 13 percent. Those over age 60 would face an even stiffer premium hike: From an average of $14,724 to $17,916, or about 22 percent. Urban and others found the same pattern.

One unintended effect: Such premium hikes could drive healthier older adults out of the market. Those with higher incomes are not only healthier but they also make too much to be eligible for the ACA’s premium subsidies.  Because some of those older adults would drop out of the market, overall participation in the exchanges would rise by only about 2 percent.  And without healthier older adults, the risk pool would worsen, not improve.

While higher income people may not be eligible for subsidies—at least as currently designed—many younger people and some middle-aged buyers are. If the new age-rating system lowers premiums for young people, it would also reduce their premium subsidies. However, Milliman found that any government cost savings would be swamped by the effects of higher premiums—and thus higher subsidies–for those 50-plus.

Milliman found that while subsidy costs would fall for those younger than 40, they’d rise by 25 percent for those aged 50-59 and by 34 percent for those 60 and older. Overall, the government would spend an additional $6.7 billion on subsidies. Analysts at the RAND Corp. have calculated that subsidy costs would rise even more–by as much as $9.3 billion.

Of course, Republicans vow to scrap the existing ACA subsidies. While they are almost certain to substitute their own financial assistance (probably through tax breaks), no-one knows what it would look like or how it would benefit people of different ages.

Getting younger people to buy health insurance is important for them and for the nation.  Reducing premium costs seems like one way to get them to buy. But doing so by raising premiums for older people—or even driving them out of the market—isn’t the way to do it.

 

 

 

 

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